Nearly ten years ago, when the world was young, when Gordon Brown's boom sailed serenely on, when banning me from Comment is Free was just a gleam in Guardian moderators' eyes, I used to post on www.housepricecrash.co.uk. A haven for fellow nutters, HPC did at least get one thing right - one of their top threads was entitled something like "Signs of credit tightening": for they thought that at some point it would become harder to get mortgages, and then property armageddon would take place.
And partly this was true. Credit tightening, aka The Credit Crunch, did happen. And the property market did stall, although it hasn't gone crashing to the floor in the UK - rising population levels have seen to that.
My own take was slightly more cautious. I thought that people would always need houses, and that it was unlikely there'd be an outright crash. But given how much economic activity flowed from the property market - solicitors, estate agents, surveyors, builders, decorators, DIY stores and so on - it did occur to me that a slowdown would hit GDP badly.
Not surprising then that George Osborne has cobbled together a cunning plan to kickstart the market, hoping that will get some growth going again. There will be two schemes as far as I can see, to guarantee deposits for first time buyers and those trapped by negative equity. The cunning aspect is that the aim is to support new-build property, helping the construction sector, and because the Government isn't providing the loans, the money is off balance sheet.
Is it a good idea? Well yes and no. There might be some knock on into economic activity, but firstly, mortgage guarantee schemes can go badly wrong. Does anyone remember Fanny Mae and Freddie Mac? The Credit Crunch did for them. US banks, knowing that the government would foot the bill if anything went wrong, lent indiscriminately. Effectively UK taxpayers will be backstopping loans to people who otherwise wouldn't be able to afford them. This has an ominously familiar ring.
The second thing is that the effect will probably be to push house prices up, and house prices are too high anyway. In the 2000s there was a massive misallocation of capital into property. Gordon Brown took house prices out of the measure used to calculate inflation, with the result that their rocketing value was never reflected in the higher interest rates which would have dampened their ascent. Ideally, some of the value needs to seep out of property and be better allocated elsewhere. I have no doubt that day will come - in fact it's happening gradually everywhere apart from the South East - but Osborne's plan will slow it in and some places perhaps even reverse it.
